Why our portfolio is John Deere green

Author: James Roberts

Covestor models: Fortune’s Most Admired, StockDiagnostics, Best Ideas

Despite the fact that Bristol-Myers (BMY) is still among the stocks included in the S&P 500 recommended by StockDiagnostics, we took our profit in it in March.  We invested the proceeds in Deere (DE), the agricultural equipment company. The motivation behind our sale of BMY was to decrease our exposure in the health care sector. Eli Lilly (LLY) and BMY are very similar and it took quite a bit of evaluation work to determine which of the two to eliminate.

For most investors the decision to sell one stock and purchase another is rarely validated by subsequent market action. In fact, most of the time the average investor and most professional investors would have been better off to have stood pat rather than switch. When I began managing this portfolio, I overweighted the health care sector as a defensive measure.

With the economy on the mend, it seems prudent to take a bit less of a defensive stance. Deere attracted my attention for several reasons. It is the only portfolio holding of ours with a country music song offering testimony of the company’s name recognition: “John Deere Green”.  In a hospital elevator last week, I asked a young lady if she had a tractor or even lived on a farm because she was wearing a John Deere tee shirt that had the slogan “nothing runs like a Deere’ stenciled on it. Her answer was neither of the above.

Even though Deere is getting some free advertising from the country music song and the lady’s tee shirt in the elevator, it is not getting much respect from the Wall Street crowd. I say that because it is trading at close to ten times estimated 2012 earnings which is a modest multiple vs. that of the S&P.  For the fiscal year ended October 31, Deere reported per share earnings of $6.63, a 52% increase on revenues of $32 billion (23% increase).

Our StockDiagnostics Portfolio currently has twenty-one holdings, ten of which are current StockDiagnostics.com large cap recommendations. All the rest earned StockDiagnostics’ highest rating of “1”, except for Plains All American Pipeline (PAA) and Deere that were rated “2”. It is worth noting that the ratings range from “1” (best) to “8” (worst) within the StockDiagnostics universe of coverage.